A slightly off-center perspective on monetary problems.
I just discovered a very good blogger that shares some of my ideas (and has actually been blogging much longer than I have.) The blogger, Nick Rowe, has a couple of very interesting posts on monetarism here and here. (He also linked to my blog, but I have been so busy that I only now noticed.) Mr. Rowe indicates that he was a student of David Laidler, and before talking about Nick’s ideas, I’d like to say a few things about Mr. Laidler.
Note: Because Christina Romer and I have both done research on similar topics, I know quite a bit about her views on monetary policy during the Great Depression. Ironically, I was planning this post for today before two things happened:
1. There was an announcement that Obama’s economic team would meet with Bernanke.
2. Several commenters including Dilip and R McGarry sent me a link to a paper with her views. I presume it was in the news today.
In any case, here is the post that I had already planned:
Last Sunday I did an offbeat post on Denmark, today I thought I’d pick another Nordic country—Iceland. This will be lighter and shorter and probably completely forgettable, but I’m burned out after two long monetary posts this weekend.
Here’s my thought; Iceland is to the Nordic mainland what America is to Europe. I got this idea watching a Lars von Trier film called “The Boss of Them All.” I don’t agree with his politics, but at least Von Trier’s satiric films don’t insult your intelligence and pander to your prejudices. In the film there was a scene where a group of visiting Icelandic businessmen were portrayed as having a very gruff and aggressive style. Later when I started reading about the Icelandic banking crisis, I noticed frequent descriptions of the men who had built these financial empires as being aggressive, swashbuckling figures, so I’m going to assume that there is some reality behind this stereotype. What lesson can we draw from this?
You may recall that in a recent blog post Krugman disagreed with the idea that unconventional monetary stimulus could help boost the economy. He also denied ever supporting that view. Well, you’ll be happy to hear that Krugman does now support unconventional monetary stimulus. Here is the quotation from his blog:
The problem, of course, is that you can’t cut interest rates below zero (if you try, lenders will just hoard cash.) So the Fed simply can’t do what the rule says it should.
This is why we need a huge fiscal stimulus, unconventional monetary policy, and anything else you can think of to fight this slump. Quite literally, the usual rules no longer apply.
Drudge highlighted an Obama request that Americans not “stuff money in mattresses.” Here is the article it is from. I know he’s talking about consumer demand, not money demand, but the Depression-era rhetoric may get people thinking about the need for monetary stimulus.
